1.ACT means the Prevention of Money Laundering Act,2002(PMLA).

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1 Anti Money Laundering Policy 1. Background: The Prevention of Money Laundering Act (PMLA), 2002 brought into force with effect from 1 st July 2005, is applicable to all the financial institutions which include insurance institutions. Accordingly, IRDA has issued regulatory guidelines/instructions on and amendments thereafter to the Insurers, Agents and Corporate agents as part of a Programme on Anti Money Laundering/Counter Financing of Terrorism (AML/CFT) for the insurance sector. II. Definations: 1.ACT means the Prevention of Money Laundering Act,2002(PMLA). 2. Money Laundering means moving illegally acquired cash through financial systems so that it appears to be legally acquired. 3. AML Programme means the programme to be put in place by every insurer to discharge the statutory responsibility to detect possible attempts of money laundering or financing of terrorism. 4. NIC means National Insurance Company Limited 5.Principal Compliance Officer (PCO)means an officer nominated by the Chairman Cum Managing Director, who would be responsible for ensuring compliance with the provisions of the PMLA. 6. FIU-INDIA means Financial Intelligence Unit-India 7.IRDA means the Insurance Regulatory and Development Authority of India 8.KYC means Know Your Customer Policy. III. AML/CFT Programme In order to discharge the statutory responsibility to detect possible attempts of money laundering or financing of terrorism, the insurer would have an AML/CFT programme which should, at a minimum, include: 1. Internal policies, procedures, and controls; 2. Appointment of a Principal compliance officer; 3. Recruitment and training of employees/agents; 4. Internal Control/Audit; Page 1

2 The above key elements of the AML/CFT programme are discussed in detail: 1. Internal policies, procedures, and controls: The insurance company would establish and implement policies, procedures, and internal controls in its AML/CFT program, as detailed below: 1.1 Know your Customer (KYC) Norms What KYC Norms? i. Considering the potential threat of usage of the financial services by a money launderer, insurance company would make reasonable efforts to determine the true identity of customers. For the purposes of these norms, the term customer also refers to the proposer/policyholder; beneficiaries and assignee. Where a client is a juridical person, verification of identity is required to be carried out on persons purporting to act and is authorized to act on behalf of a customer. Special care has to be exercised to ensure that the contracts are not anonymous or under fictitious names. ii. Insurers shall verify and document identity, address and recent photograph (in case of individual customers) as part of compliance with KYC norms. A list of documents to be verified under KYC norms for individuals and others is given in Annexure-I. iii. Insurance premium paid by persons other than the person insured should be looked into to establish insurance interest. iv. Care has to be exercised to avoid unwitting involvement in insuring assets bought out of illegal funds. It is imperative to ensure that the insurance being purchased is reasonable, especially in other than products like motor insurance that are mandated by law. Accordingly, customer s source of funds, his estimated net worth etc., could be documented where considered necessary. Insurers would take appropriate measures, commensurate with the assessed risk of customer and product profile as part of their due diligence measures which may include: Conducting independent enquiries on the details collected on / provided by the customer where required, Consulting a credible database public or other etc., Relevant records and details must be maintained in such a way that it enables verification at a later date and support the fact of having established sources of funds involved in the insurance contract. v. At any point in time during the contract period, where an insurance company is no longer satisfied that it knows the true identity of the customer, an STR should be filed with FIU-IND vi. The insurer would not enter into contact with a customer whose identity matches with any person with known criminal background or with banned entities and those reported to have links with terrorists or terrorist organizations. Page 2

3 vii. Insurers are required to conduct detailed due diligence while taking insurance risk exposure to individuals / entities connected with countries identified by FATF as having deficiencies in their AML/CFT regime. Special attention should be paid to business relationships and transactions, especially those which do not have apparent economic or visible lawful purpose When should KYC be done? General insurance companies are required to carry out KYC norms at the settlement stage where claim payout/premium refund crosses a threshold of Rs. One lakh per claim / premium refund. In cases where payments are made to third party service providers such as hospitals / garages/ repairers etc., the KYC norms shall apply on the customers on whose behalf service providers act. The AML/CFT checks become more important in case of claims on the policies assigned by the policyholder to a third party not related to him (except where the assignment is to Banks/FIs/Capital Market intermediaries regulated by IRDA/RBI/SEBI). Especially where there is suspicion of money laundering or terrorist financing, or where there are factors to indicate a higher risk, AML/CFT checks will have to be carried out on such assignments and STR should be filed with FIU-IND, if necessary Risk Assessment and Exempt Products: The AML/CFT requirements focus on the vulnerability of the products offered by the insurers to any of the process of money laundering. Insurers shall carry out risk assessment of various products before deciding on the extent of due diligence measures to be applied in each case. An illustrative list of such vulnerable products / services are given in Annexure II The hitherto, exempt standalone health/medi-claim policies shall also be brought under the purview of AML/CFT requirements based on the assessed risks associated with each of the product profile. The following products are exempt from the purview of AML/CFT requirements: Reinsurance and retrocession contracts where the treaties are between insurance companies for reallocation of risks within the insurance industry and do not involve transactions with customers Group insurance business which are typically issued ( as per guidelines on group insurance policies) to a company, financial institution, or association and generally restrict the ability of an individual insured / participant to manipulate Page 3

4 1.2 Implementation of Section 51A of UAPA (Unlawful Activities Prevention Act): By virtue of Section 51A of UAPA, the Central Government is empowered to freeze, seize or attach funds of and / or prevent entry into or transit through India any individual or entities that are suspected to be engaged in terrorism. To implement the said section an order reference F. No /10/2002-IS-VI dated 27 th August, 2009 has been issued by the Government of India. The salient aspects of the order with particular reference to insurance sector are detailed in the following paragraphs. A consolidated list of all the UAPA Nodal Officers of various agencies governed by the order will be circulated every year and on every change in the list, on receipt of the same from Ministry of Home Affairs. i. Procedure for freezing of insurance policies of designated individuals/entitles In case any matching records are identified, the procedure required to be adopted is as follows: a. The operating 0ffices through Nodal Officer of Regional Office shall immediately and in any case within 24 hours from the time of identifying a match, inform full particulars of the insurance policies held by such a customer on their books to the joint Secretary (IS-I), Ministry of Home Affairs, at Fax No and also convey over telephone on The particulars apart from being sent by post should necessarily be conveyed on id: jsis@nic.in. b. The insurance companies shall file a Suspicious Transaction Report (STR) with FIU-IND in respect of the insurance policies covered by paragraph 1.2(i) (a) above, carried through or attempted, in the prescribed format. c. On receipt of the particulars of suspected designated individual/entities IS-I Division of MHA would cause a verification to be conducted by the State Police and / or the Central Agencies so as to ensure that individuals/entities identified by the insurance companies are the ones listed as designated individuals/entities and the insurance policies, reported by insurance companies are held by the designated individuals/entities. d. In case, the results of the verification indicate that the insurance policies are owned by or are held for the benefit of the designated individuals/entities, an order to freeze these insurance policies under section 51A of the UAPA would be issued within 24 hours of such verification and conveyed electronically to the concerned office of insurance company under intimation to IRDA and FIU-IND. e. The said order shall take place without prior notice to the designated individuals/entities. Freezing of insurance contracts would require not-permitting any transaction (financial or otherwise), against the specific contract in question. Page 4

5 ii. Procedure for unfreezing of insurance policies of individuals/entities inadvertently affected by the freezing mechanism, upon verification that the individual/entity is not a designated individual/entity a. Any individual or entity, if they have evidence to prove that the insurance policies, owned/held by them has been inadvertently frozen, shall move an application giving the requisite evidence, in writing, to the concerned insurance companies. b. The insurance companies shall inform and forward a copy of the application together with full details of the insurance policies inadvertently frozen as given by any individual or entity, to the Nodal Officer of IS-I Division of MHA within two working days. c. The Joint Secretary (IS-I), MHA, the Nodal Officer for IS-I Division of MHA shall cause such verification as may be required on the basis of the evidence furnished by the individual/entity and if he is satisfied, he shall pass an order, within 15 working days, unfreezing the insurance policies owned/held by such applicant, under intimation to the concerned insurance company. However, if it is not possible for any reason to pass an Order unfreezing the assets within 15 working days, the Nodal Officer of IS-I Division shall inform the applicant. iii. Implementation of requests received from foreign countries under U.N. Security Council Resolution 1373 of a. U.N. Security Council Resolution 1373 obligates countries to freeze without delay the funds or other assets of persons who commit, or attempt to commit, terrorist acts or participate in or facilitate the commission of terrorist acts; of entities owned or controlled directly or indirectly by such persons; and of persons and entities acting on behalf of, or at the direction of such persons and entities, including funds or other assets, derived or generated from property owned or controlled, directly or indirectly, by such persons and associated persons and entities. b. The freezing orders shall take place without prior notice to the designated persons involved. 1.3 Reporting Obligations: The AML/CFT program envisages submission of Reports on certain transactions to a Financial Intelligence Unit-India (FIU-IND) set up by the Government of India to track possible money laundering attempts and for further investigation and action. i Suspicious Transactions Reports: a. Special attention should be paid to all complex, unusually large transactions and all unusual patterns which have no apparent economic or visible lawful purpose. Background of such transactions, including all documents / office records / memorandums pertaining to such transactions, as far as possible, should be examined by the Principal Compliance Officer. These records are required to be preserved for ten years b. An illustrative list of suspicious transactions is provided in Annexure III. Page 5

6 c. Operating Offices through the Nodal Officer of the Regional Office would report the suspicious transactions immediately on identification. Such reports should include attempted transactions, whether or not made in cash, irrespective of the monetary value involved. When such transactions are identified post facto the contract, a statement may be submitted to FIU-IND within 7 working days of identification in the prescribed formats. d. Directors, officers and employees (permanent and temporary) shall be prohibited from disclosing the fact that a Suspicious Transactions Report or related information of a policyholder/prospect is being reported or provided to the FIU-IND. ii. Monitoring and Reporting of Cash Transactions: a. With a view to ensuring that premiums are paid out of clearly identifiable sources of funds, premium / proposal deposits remittances in cash beyond `Rs /- per transaction shall be accepted subject to the customer quoting PAN. Insurers shall verify the authenticity of the details of PAN so obtained. In case of customers not required to have PAN or with only agricultural income, Form 60/61 prescribed under the provisions of Income Tax Rules shall be obtained. b. From the perspective of AML/CFT guidelines, it becomes imperative to obtain the details of PAN of the person/entity funding the premium/proposal deposit on an insurance policy. c. Any cash transaction above Rs. 10 lakh and integrally connected cash transactions above Rs.`10 lakh per month shall be reported to FIU-IND by 15 th of the succeeding month. d. Premium collected from various customers and remitted by intermediaries is however, excluded from these reporting requirements. e. Proper mechanisms has to be laid down to check any kind of attempts to avoid disclosure of PAN details. In case of possible attempts to circumvent the requirements, the same shall be reviewed from the angle of suspicious activities and shall be reported to FIU-IND, if required. f. The above clauses should not be selectively interpreted on individual transaction basis. Splitting of the insurance policies / issue of number of policies to one or more entities facilitating individuals to defeat the spirit of the AML/CFT guidelines should be avoided. Where there is possibility of transactions being integrated through a single remitter, the insurer should refuse to accede to the requests for cash deposits. iii. Reporting of receipts by Non-profit Organizations: All transactions, involving receipts by non-profit organizations of value more than Rs. 10 lakh, or its equivalent in foreign currency, should be reported to FIU-IND by 15 th day of next succeeding month. iv. Reporting of Counterfeit Currency/Forged Bank notes (CCR): All cash transactions, where forged or counterfeit currency notes or bank notes have been used as genuine and where any forgery of a valuable security or a document has taken place facilitating the transaction should be reported within 7 days of identification to FIU-IND. Page 6

7 1.4 Record Keeping i. The insurer/agents / corporate agents are required to maintain the records of types of transactions mentioned under Rule 3 of PMLA Rules 2005 as well as those relating to the verification of identity of clients for a period of 10 years. ii. Sharing of information on customers may be permitted between different organizations such as banks, insurance companies, income tax authorities, local government authorities on request. iii. Companies should retain the records of those contracts, which have been settled by claim (maturity or death), surrender or cancellation, for a period of at least 10 years after that settlement. IV. In situation where the records relate to ongoing investigations, or transactions which have been subject of a disclosure, they should be retained until it is confirmed that the case has been closed where practicable, insurance institutions are requested to seek and retain relevant identification documents for all such transactions and to report the offer of suspicious funds. V. In case of customer identification data obtained through the customer due diligence process, account files and business correspondence should be retained for at least 10 years after the business relationship is ended. 2. Compliance Arrangements: I.Responsibility on behalf of the agents and corporate agents: It is necessary that steps are taken to strengthen the level of control on the agents and corporate agents engaged by the insurers. a. A list of rules and regulations covering performance of agents and corporate agents must be put in place. A clause should be added making KYC norms mandatory and specific process document can be included as part of the contracts. b. Services of defaulting agents who expose the insures to AML/CFT related risks on multiple occasions should be terminated. c. Insurance company when faced with a non-compliant agent or corporate agent should take necessary action to secure compliance, including when appropriate, terminating its business relationship with such an agent/corporate agent. ii.appointment of Principal compliance Officer: a. Appointment: The company would designate a principal compliance Officer (PCO) under AML/CFT guidelines, at senior level and preferably not below the Head (Audit/Compliance)/ Chief Risk Officer. The name of PCO should be communicated to IRDA and FIU. Page 7

8 b. Rights and Responsibilities: i. The PCO would ensure that the Board approved AML/CFT program is being implemented effectively, including monitoring compliance by the company s insurance agents with their obligations under the program; ii. He / She would ensure that employees and agents of the insurance company have appropriate resources and are well trained to address questions regarding the application of the program in light of specific facts. iii. He/She should be able to act independently and report to senior management. iv. He / She and staff assisting him in execution of AML/CFT guidelines should have timely access to customer identification data, other KYC information and records. 3. Recruitment and Training of employees/ agents: I. The selection process of agents/corporate agents should be monitored carefully. The Authority monitoring the agents should monitor sales practices followed by agents and ensure that if any unfair practice is being reported then action is taken after due investigation; Periodic risk management reviews should be conducted to ensure company s strict adherence to laid down process and strong ethical and control environment. ii. Insurance Companies would have adequate screening procedures when hiring employees. iii. Instruction Manuals on the procedures for selling insurance products, customer identification, record keeping, acceptance and processing of insurance proposals, issue of insurance policies would be set out. iv. The concept of AML/CFT would be part of in-house training curriculum for all employees including agents in all training centres. v. The following training requirements are considered essential based on the class of employees. a. New employees; A general appreciation of the background to money laundering, and the subsequent need for identifying and reporting of any suspicious transactions to the appropriate designated point should be provided to all new employees who will be dealing with customers or their transactions, irrespective of the level of seniority. b. Sales/Advisory staff: Members of staff who are dealing directly with the public ( whether as members of staff or agents) are the first point of contact with potential money launderers and their efforts are therefore vital to the strategy in the fight against money laundering. It is vital that front-line staff is made aware of the insurance institution s policy for dealing with non-regular customers particularly where large transactions are involved, and the need for extra vigilance in these cases. Page 8

9 c. Processing staff: Those members of staff who receive completed proposals and cheques for payment of premium must receive appropriate training in the processing and verification procedures. d. Administration/Operations supervisors and managers: A higher level of instruction covering all aspects of money laundering procedures should be provided to those with the responsibility for supervising or managing staff. vi. Ongoing training: It will also be necessary to make arrangements for refresher training at regular intervals to ensure that staff does not forget their responsibilities. vii. Records of training imparted to staff in the various categories detailed above should be maintained. 4. Internal Control/ Audit: Insurance companies internal audit/inspection departments would verify on a regular basis, compliance with policies, procedures and controls required to be in place under these guidelines. The reports should specifically comment on the robustness of the internal policies and process in this regard and make constructive suggestions where necessary, to strengthen the policy and implementation aspects. Exception reporting under AML/CFT policy would be done to Audit Committee of the Board. Page 9

10 Annexture-I Customer Identification Procedure Documents that may be obtained from customers Features Insurance Contracts with individuals Legal name and any other names used Proof of Residence Documents i. Passport ii.pan Card iii. Voter s identity Card iv.driving License v.letter from a recognized public Authority (as defined under Section 2(h) of the Right to Information Act, 2005) or Public Servant (as defined in Section 2(c ) of the The Prevention of Corruption Act, 1988 ) verifying the identity and residence of the customer vi.personal identification and certification of the employees of the insurer for identity of the prospective policyholder. vii.letter issued by Unique Identification Authority of India containing details of name, address and Aadhar number viii.job card issued by NREGA duly signed by an officer of the State Government i.telephone bill pertaining to any kind of telephone connection like, mobile, landline, wireless, etc. provided it is not older than six months from the ate of insurance contract ii.current Passbook with details of permanent/present residence address(updated upto the previous month) iii.current statement of bank account with details of permanent/present residence address ( as downloaded) iv.letter from any recognized public authority v.electricity bill vi.ration card vii.valid lease agreement along with rent receipt, which is not more than three months old as a residence proof viii.employer s certificate as a proof of residence (Certificates of employers who have in place systematic procedures for recruitment along with maintenance of mandatory records of its employees are generally reliable) Page 10

11 Proofs of both identify and Residence Written confirmation from the banks where the prospect is a customer, regarding identification and proof of residence. The above need not be insisted upon in case of micro insurance products. Instead the following documents are sufficient proofs of identity and address: Current passbook with details of permanent/present residence address (updated upto the previous mont) Current statement of bank account with details of permanent/present residence address (as downloaded) Insurance Contracts with companies Name of the company Principal place of business Mailing address of the company Telephone/Fax Number i.certificate of incorporation and Memorandum & Articles of Association ii.resolution of the Board of Directors to open an account and identification of those who have authority to operate the account iii.power of Attorney granted to its managers, officers or employees to transact business on its behalf iv.copy of PAN allotment letter Insurance Contracts with partnership firms Legal name Address Names of all partners and their addresses Telephone numbers of the firm and partners Insurance Contracts with trusts & foundations Names of trustees, settlers beneficiaries and signatories Names and addresses of the founder, the managers/directors and the beneficiaries Telephone/fax numbers i.registration certificate, if registered ii.partnership deed iii.power of Attorney granted to a partner or an employee of the firm to transact business on its behalf iv.any officially valid document identifying the partners and the persons holding the Power of Attorney and their addresses i.certificate of registration, if registered ii.power of Attorney granted to transact business on its behalf iii.any officially valid document to identify the trustees, settlers, beneficiaries and those holding Power of Attorney, founders/managers/directors and their addresses iv.resolution of the managing body of the foundation/association Page 11

12 Annexure II Vulnerable Products / Features: 1. Personal Accident Policies 2. Assignment of Policies Note: The list is only illustrative and not exhaustive Page 12

13 Annexure III Illustrative list of Suspicious Transactions: 1. Customer insisting on anonymity, reluctance to provide identifying information, or providing minimal, seemingly fictitious information 2. Cash based suspicious transactions for payment of premium over and above ` 5 lakh per person per month. It should also consider multiple DDS each denominated for less than `50,000/- 3. Frequent free look surrenders by customers; 4. Assignments to unrelated parties without valid consideration; 5. Policy from a place where he does not reside or is employed; 6. Frequent request for change in addresses 7. Inflated or totally fraudulent claims e.g. by arson or other means causing a fraudulent claim to be made to recover part of the invested illegitimate funds 8. An established trend or pattern or frequent overpayment of premium with a request for refund of the overpaid amount 9. Frequent cancellation of policies for the return of premium by an insurer s cheque Note: The list is only illustrative and not exhaustive. For more examples on Suspicious Transactions please visit Page 13